Baku housing market shows signs of stabilising Overheated prices begin to cool

In recent years, Azerbaijan’s real estate and housing construction sector has faced numerous challenges: the cost of building materials has risen, regulations have tightened, tax oversight has increased, and the delivery of new housing has slowed. As a result, apartment prices in the capital surged, even as sales activity declined.

According to the international rating agency S&P Global Ratings, however, the domestic real estate market is now entering a stabilisation phase, with housing prices expected to grow moderately. Experts note that the overheated market can only be cooled through a significant increase in the supply of new construction. This appears increasingly likely: under Baku’s master plan for city development through 2040, a large-scale programme to demolish old housing is planned, which will pave the way for a substantial increase in new buildings.

In recent years, Azerbaijan’s domestic residential construction sector has faced multiple challenges, leading to higher construction costs and a slowdown in housing development across both the capital and regional areas. Even with the unprecedented surge in building activity on territories liberated from occupation, overall housing construction rates showed no significant growth.

According to the State Statistical Committee of Azerbaijan, the country’s construction market capitalisation fell by 5.8% in 2022, while the total area of newly completed housing reached 2.593 million sq. m—a 24.8% decline compared to the previous year. In 2023, construction volumes decreased by 3% to roughly 2.511 million sq. m. This downward trend persisted in 2024, when over 20,000 residential buildings of all types were commissioned, covering more than 2.3 million sq. m, representing an 11% drop.

The inertial forces affecting the market were largely linked to imported inflation: the cost of imported construction materials and equipment rose significantly, along with higher expenses for fuel, transportation, and labour services. Equally important was the acute shortage and rapid price increase of land suitable for construction in Baku, Sumgayit, the Absheron Peninsula, and other urbanised regions of the country.

On the other hand, building regulations introduced several years ago require strict compliance with zoning rules, preventing developers from increasing buildable area by reducing non-residential space. This has also restrained the dynamics of the construction market. For comparison, whereas previously up to 80,000 sq.m of residential space could be built on one hectare of land, today the limit is only 20–25,000 sq.m.

On the other hand, in previous years, much of the construction workforce was often employed unofficially, building materials were acquired through barter or other “grey” schemes, a simplified taxation system operated, and fiscal contributions were not fully paid. Today, however, the situation has changed fundamentally: workers are now officially registered via the Ministry of Labour’s digital portal, corresponding contributions to the Social Fund are properly made, and developers are required to pay 20% profit tax and 18% VAT.

Furthermore, housing construction cooperatives (HCCs) now purchase materials through officially registered mechanisms, while supervision of residential construction and adherence to building standards has been strengthened. Facades are insulated with stone wool, granite is used, modern elevators from well-known brands are installed, and overall, the safety and aesthetic quality of new buildings has significantly improved.

Naturally, all of this has led to higher construction costs and has partly contributed to a reduction in the volume of new housing in the capital. According to economist Firdovsi Khalilov, over recent years, the cost per square metre in new buildings has more than doubled, while the average market price of apartments in Baku has risen from 1,200 manat ($705) to 3,500–4,000 manat ($2,058-2,352) per square metre.

And this is far from the ceiling: in some parts of the capital, prices are significantly higher. On Neftchilar Avenue, for example, a square metre of housing is now offered for more than 17,500 manat ($10,294); on Uzeyir Hajibeyli Street, prices exceed 14,000 manat ($8,235); in the Agh Sheher area, over 8,000 manat ($4,705); and prices are also comparatively high in the Port Baku district. The highest property values continue to be recorded in the Sabail, Nasimi, and Yasamal districts, as well as in the historic city centre on Istiglaliyyat, Ahmad Javad, and Aziz Aliyev streets.

Nevertheless, by the end of last year, and in January–February 2026, the excessively overheated residential market in the capital has generally started moving into a phase of stabilisation. According to S&P Global Ratings, growth in real estate prices in Azerbaijan is expected to slow compared with previous years, although no significant decline in prices is anticipated. Accounting for inflation, housing prices in Azerbaijan in 2026 are projected to rise by around 5–6%.

A similar view is shared by Vugar Oruj, Chairman of the Azerbaijan Society of Appraisers, who believes that, given the trends observed at the beginning of the year, price growth in the secondary housing market may slow down. In particular, while the weighted average increase in prices for secondary apartments in the capital was 9.4% in 2025, forecasts indicate that growth in this segment will slow to 6.5% in 2026 and to 5.2% in 2027.

Assessing long-term trends, the head of the Society of Appraisers emphasised that while 2023–2024 were characterised by aggressive price growth in the housing market, this trend had somewhat weakened by the end of 2025. 2026 could likely become a period of further stabilisation and slower growth, with selective price increases in the following year occurring only in specific localities where new residential and infrastructure projects are being implemented.

These forecasts are well justified, as current market prices for housing far exceed the population’s purchasing power and fall outside the limits of typical mortgage lending. In recent years, the rise in capital city property prices was largely supported by speculative demand in the investment segment, but this trend is now approaching its end.

Notably, after several years of decline, residential construction capitalisation began to increase by the end of 2025. According to the State Statistical Committee of Azerbaijan, total investment in the fixed capital of the country’s construction sector reached 5.725 billion ($3.37 billion) manat last year, of which 3.074 billion manat ($1.81 billion) was allocated specifically to residential construction—an 8% increase compared with 2024. Higher investment in housing construction will naturally lead to an increase in the supply of new multi-storey buildings, prompting the market to respond with price adjustments.

Apparently, these processes are likely to continue accelerating. A key driver of this is the large-scale urban redevelopment programme planned under Baku’s Master Plan for 2040. In particular, the plan foresees the mass demolition of buildings constructed illegally on lands prone to landslides, within protected zones around oilfields, and in areas traversed by high-voltage power lines, gas pipelines, and railway infrastructure.

At the same time, the capital currently has around 16,000 buildings that have exceeded their service life, most of which were constructed during the Soviet era. As part of reconstruction efforts covering the districts of Sabail, Yasamal, Binagadi, Narimanov, Khatai, Nizami, Sabunchu, Nasimi, Surakhany, and Pirallahi, a substantial number of old low-rise and structurally unsound multi-storey buildings are scheduled for demolition.

This work will soon free up significant space for modern high-rise development. Through public-private partnerships, existing housing construction cooperatives in the capital will overcome land shortages and be able to expand residential construction volumes. It is hoped that this process will have a positive effect on housing prices, stimulating activity in the buying and selling of apartments.